You wouldn’t think that contract formation problems resulting from an acceptance that varies from the offer would be a problem in real estate. You would be wrong. It is still a common, if completely misguided, practice for agents to allow (or even suggest) clients make (and initial) changes to an offer or counter-offer prior to “accepting.” These agents evidently believe that minor changes made in this way are “easier” than making a counter offer. That is not the case and this manner of conducting business is extremely dangerous. Here’s why.
It is the most basic of common law contract rules that an acceptance which adds qualifications or conditions to an offer operates as a counter offer and, therefore, a rejection of the offer. Any attempt by the offeree to add or subtract anything from the offer will result in uncertainty in the formation of the contract if for no other reason than that there is no place on standard forms for the offeror to accept a counter offer made in this way. All this leaves formation of the contract very much up in the air when additions or deletions are made to an offer before it is “accepted.”
Just how much up in the air changing the terms of an offer can leave formation is illustrated by the famous Oregon case of Painter v. Huke. Huke listed his property with a broker who obtained an offer from the Painters. Huke countered for more money down. The Painters were OK with the increased down but wanted more time to close. So the agent had the Painters change the closing date, initial the change and “accept” Huke’s counter offer. She then sent a copy of the signed counter offer to Huke and started working to close the deal.
About a month later when the closing in Huke’s counter offer came due, Huke asked the broker why the Painters weren’t closing. That’s when he learned of the changed closing date. Not happy with any of this, he sold the property to another buyer. That’s when the Painters sued him and won at trial. On appeal, the Oregon Court of Appeals ruled against the Painters, holding they had no contract with Huke because their initialed change to Huke’s counter offer added to the terms of the offer and, therefore, was a rejection and counter offer by the Painters. The Court could find no evidence that Huke accepted the Painters’ counter offer and, therefore, found there was no contract. Click here for a copy of the Painter v. Huke case.
For years, preprinted real estate contracts have contained a warning to sellers and their agents to not make any modification to the offer. The next time you see that warning, think of Painter v. Huke. Making alterations to an offer, whether those alterations are initialed or not, destroys the power of acceptance. Returning the altered form to the offeror is a counter offer. Click here for a discussion of counter offers. Acceptance varying from the offer always creates the potential that a court will later rule no contract was ever formed.
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